Residential real estate investments refer to the typical buildings you’re likely to purchase. This includes houses and apartments but can extend to things like static caravans. On the other side of the equation, you have commercial investments. This includes things like offices, retail units, etc. Basically, any buildings that are used for commercial purposes rather than for someone to live in.
Consequently, there’s often a debate amongst investors over which one is better. Some will argue that commercial real estate is the best – but is this true? Well, let’s find out!
Higher Returns
Commercial properties will yield higher returns than residential ones – particularly when renting them out. This is because you can charge much higher rental rates to businesses. Why? Because they can afford to pay them, versus one or two individuals renting out a flat.
It’s also more likely you can purchase a commercial building and convert it into multiple offices, allowing you to get money from multiple businesses. Whichever way you look at it, commercial real estate does tend to have higher returns.
Easier to Manage
Similarly, commercial real estate is a lot easier for you to manage. Businesses have specific operating hours – which will usually be 9-5 or similar. So, you don’t tend to get calls from tenants out of hours with problems. You can usually settle down in the evening without worrying about someone calling you because there’s an issue with the property.
Plus, businesses typically take better care of the property because it represents their brand. If they make a mess, it reflects poorly on their reputation, so they do everything to keep it perfect. Residential tenants are more likely to cause damage or create a mess.
Harder to Invest In
One of the downsides of commercial real estate is that it can be harder to invest in. Sometimes, you need to be an accredited or approved investor to purchase commercial properties. Granted, as these DiversyFund reviews show, you can invest in commercial property for as little as $500 with no prior experience. But, this means you only own part of the property, so you aren’t in charge of things like choosing tenants, making upgrades, and so on.
Residential properties tend to be more accessible, with fewer regulations in place stopping you from making a purchase.
More Risks
While commercial real estate yields higher returns, it also brings more risks to the table.
Think about it, commercial properties are more likely to be robbed, and they will have more footfall every day. Despite your tenant’s best efforts, they might be unable to stop general wear and tear or damage to your property caused by customers. Thus, more money is spent on property maintenance.
Furthermore, you have more chance of a business going bankrupt and having to close down than a residential tenant moving out. So, this carries slightly more risk as you may end up with empty holdings.
Overall, commercial real estate investments are not better than residential ones – nor are they worse. They simply offer a different approach that might be worth looking into to diversify your portfolio.
